zillowA recurring circumstance fraught with peril for policyholders is one in which the policyholder receives a demand letter in one policy period and then receives a related lawsuit in a subsequent policy period. The fact that these events straddle two policy periods creates potential for possible coverage preclusive issues having to do with Notice of Claim and Claims Made Date issues. In an April 13, 2017 order (here), Judge James Robart, applying the law of Washington State, held that because Zillow failed to give timely notice of a demand letter it received in the prior policy period, there was no coverage for the later lawsuit filed against Zillow in the subsequent policy period, because the claim had first been made at the time of the demand. As discussed below, this case and Judge Robart’s analysis raises some interesting issues.



Zillow procured two successive Specialty Risk Protector Policies, one for the policy period July 19, 2013 through July 19, 2014, and for the policy period July 19, 2015. The policies provided coverage for Zillow relating to its online media content.


On July 10, 2014 (that is, during the policy period of the first of the two policies), VHT send Zillow a demand letter claiming that Zillow was misusing images VHT had licensed to Zillow and demanding that Zillow remove the images from its website.  Zillow replied on July 21, 2014, requesting additional information, to which request VHT did not respond. However, nearly a year later, on July 8, 2015 (that is, during the policy period of the second of the two policies), VHT filed a lawsuit against Zillow requesting relief for direct and contributory infringement, as well as vicarious liability, through Zillow’s improper use or facilitation of  improper use of the images. The VHT lawsuit resulted in an $8.2 million verdict against Zillow.


Zillow notified its insurer of the VHT lawsuit shortly after it was filed. The insurer initially defended the claim subject to a reservation of rights. However, after the insurer for the first time received a copy of VHT’s July 2014 demand letter, the insurer took the position that there was no coverage for the claim, because the claim had first been made at the time the demand letter was sent, during the policy period of the 2013-2014 policy, and that Zillow had not provided timely notice of the demand letter as required under the policy.


In September 2016, the insurer filed an action seeking a judicial declaration that it had no duty to defend Zillow in the VHT lawsuit because the claim arose under the previous policy period. Zillow filed a counterclaim seeking a judicial declaration that the insurer has a duty to defend, arguing that it had timely notified the insurer of the lawsuit, which, it contended was independent of the demand letter. The insurer filed a motion for judgment on the pleadings.


The policy specifies that the insurer is required to pay certain losses related to Zillow’s media content “solely with respect to a Claim first made against an Insured during the Policy Period or Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of the policy.”


The policy defines Claim to mean: “(1) a written demand for money, services, non-monetary relief or injunctive relief; or (2) a Suit.” A “Suit” means “a civil proceeding for monetary, non-monetary or injunctive relief.”


The policy requires Zillow to give the insurer notice of any claim “as soon as practicable” but “no later than either: (1) forty-five (45) days after the end of the Policy Period or (2) the end of any applicable Discovery Period.”


The Policy further provides that “if written notice of a Claim… has been given to the Insurer … then … any subsequent Claim made against an Insured … arising out of, based upon, or attributable to the facts giving rise to such Claim … for which such notice has been given, or alleging any Related Acts thereto, shall be considered made at the time such notice was given.


The April 13, 2017 Order

In his April 13, 2017 order, Judge Robart granted the insurer’s motion for judgment on the pleadings and also granted the insurer’s motion to dismiss Zillow’s counterclaim.


Judge Robart first held that the 2014 demand letter was a “Claim” that Zillow did not timely report under the terms of the Policy. In concluding that the demand letter was a Claim, Judge Robart noted that the letter directed Zillow to immediately remove the allegedly infringing materials from the website, and thus constituted a “written demand for … non-monetary relief.”


Judge Robart also held that the demand letter did not trigger coverage under the 2013-2014 policy because Zillow had not reported the letter within 45 days of the end of the 2013-2014 policy period. He further concluded that the VHT litigation was sufficiently related to the demand letter that the litigation related back to the demand letter for purposes of determining the claims made date, and therefore that the claims made date for the lawsuit was the date of the demand letter.


In reaching this conclusion, Judge Robart rejected the four arguments from which Zillow attempted to contend that the lawsuit was a separate claim from the demand letter.


First, he rejected Zillow’s argument that, because under the policy, a Claim is a written demand or a suit, a suit following a written demand is by definition a different Claim. Zillow argued that because of the use of the word “or,” each new written demand or proceeding is a new Claim, regardless of whether it involves the same or different subject. Judge Robart said that Zillow gave too much weight to the term “or,” the use of which is “required by basic grammatical considerations,” in light of the fact that the definition if necessarily broken into two clauses.


Second, he rejected Zillow argument that the demand and the lawsuit were different because they involved different legal allegations and sought different relief. Zillow did not dispute that the demand letter and the lawsuit were “related” in the sense that they both arose out of the same alleged facts, but argued rather that they were not related enough because the lawsuit and the letter cited different provisions of the Copyright Act; the letter did not request damages or even suggest the possibility of litigation; and the demand letter referred only to a small number of the images that ultimately were referred to in the lawsuit.


Judge Robart rejected these arguments, noting that the complaint and the demand letter alleged “identical facts,” adding that the demand letter did not need to enumerate the specific causes of action that would eventually be at issue in the litigation, or even refer to the litigation. Judge Robart said that he found “no meaningful difference” between the demand letter and the lawsuit for purposes of coverage under the policy.


Third, Judge Robart rejected Zillow’s argument based on the absence from the policy of the standard claims integration clause (“all claims arising from same events or in any way involving the same or related facts … are deemed a single claim.”) Instead, the policy contained a “conditional” clause, providing that “if written notice of claim has been given … then any subsequent claim [etc.] shall be considered made at the time such notice is given.” Zillow’s argument, Judge Robart said, “focuses too narrowly on the language of the provision … while missing the broader language and purpose of the Policy.” More to the point, he said, “it ignores the Policy language that highlights the importance of the Policy’s “Claims first made” provision.


He went on to say that this provision gives the insurer certain rights, including the right to investigate the claim, ability to direct litigation – for example, by investigating Zillow’s conduct in reference to the allegedly infringing images that were posted on Zillow’s website, which could have saved the insurer millions of dollars of potential coverage liability. By failing to provide the insurer with notice of the demand letter, Zillow denied the insurer this “opportunity.” Accordingly, Judge Robart found “ample support in the Policy language” for the insurer’s interpretation of the “claims first made” provision, which required Zillow to report Claims during the Policy period in which they occurred.


Finally, Judge Robart rejected Zillow’s argument that the insurer had waived its argument based on its failure to required disclosure of the demand letter during the policy renewal process. There was no intentional relinquishment of a known right sufficient to constitute a waiver, and in any event, the policy provides specific provisions detailed the requirements for notice under the policy.



Before I talk about the specifics of Judge Robart’s analysis, I want to step back and take a look at what happened here. What happened is that Zillow paid and the insurer accepted premiums for two successive insurance policies providing coverage for the very type of claims VHT asserted against Zillow. The insurer had a policy in force at the time of the demand letter and had a policy in force at the time the lawsuit was filed. Nevertheless, the result of the coverage lawsuit is that the insurer gets to keep the premium but Zillow gets no coverage for the claims asserted against it.


Part of what makes this case hard to think about is the way that the Claims Made issues and the Notice of Claim issues are intertwined. The policy’s Claims Made provisions make determination of the Claims Made date contingent on timely compliance with notice requirements.


Regular readers know that when it comes to timeliness of notice of claim, I am a big proponent of the notice prejudice rule – that is, that insurers ought not to assert untimely notice as a defense to coverage unless they have been prejudiced. My reason for supporting this view is that I see how frequently even very sophisticated policyholders fail to recognize the need to provide notice of claim to their insurers. I regularly see instances where, as I suspect also happened here, policyholders fail to see the need to give notice because they don’t recognize an event or circumstance as constituting a claim. Many policyholders conceive of a claim as a lawsuit, and don’t recognize, for instance, that a demand letter is a claim. The reason I am a big proponent of the notice prejudice rule is that I know from experience how frequently these kinds of things happen.


I have argued further that the general arguments in favor of a notice prejudice rule is even stronger where, as here, the insurer has provided coverage on two successive insurance policies of which the second is the renewal of the first. This is not a case where for example a different insurance company provided the coverage at the time that Zillow received the demand letter; it was the same insurer on both the prior and on the subsequent policies.


At least based on what Judge Robart stated in his opinion, however, my usual argument in favor of the notice prejudice rule ultimately would be unavailing here; at least in Judge Robart’s view, as a result of Zillow’s failing to give the insurer timely notice of the demand letter, the insurer was denied the “opportunity” to investigate the claim, which “could have saved” the insurer “millions of dollars of potential coverage liability.” While I am skeptical of the factual premise for this assertion, I take it at face value, which suggests that even the application of a notice prejudice rule here might not have altered the ultimate analysis. And that conclusion is without even confronting the analytically difficult issue of whether the notice prejudice rule properly should be applied for purposes of Claims Made date determination issues.


Nevertheless, there is an issue with respect to which I think Judge Robart’s analysis arguably does not withstand closer scrutiny. Judge Robart made short shrift of the argument Zillow tried to make based on the absence from this policy of the standard claims integration clause, and in reliance on the policy’s use of the conditional provision that said only that “if written notice of Claim has been given… (etc.) … then any subsequent Claim .. shall be considered at the time such notice was given.” Judge Robart was quite at ease with interpreting this provision as if it were worded consistently with the standard claim integration clause language, in part because of the fundamental claims made nature of the policy.


I think there is a good argument that Judge Robart’s interpretation and application of this provision may not be warranted. The fact is that Judge Robart’s application of this provision sits uneasily with the facts of this case. Indeed, it could be argued based on this language that where no written notice of Claim has been given, then the “considered made at the time” provision simply doesn’t apply. The way this language applies here is at best confusing; there was no notice, so what could it possibly mean to say that the claim is considered made at the time of a notice that , in fact, was never given? And in any event, the “date of the notice” is definitely not the date of the demand letter, so how can we conclude that the lawsuit was first made at the date of demand letter? That simply isn’t what the policy says. At a minimum the applicability and operation of this language to the circumstances at hand is ambiguous and the language ought to be treated as ambiguous and interpreted against the insurer.


I am not sure where all of this might come out if the provision had been interpreted as ambiguous and construed against the insurer. It is possible that if this provision were viewed as ambiguous, the determination of the claims made date for the subsequently filed lawsuit would be viewed as ambiguous as well, in which case Zillow might have had the opportunity to enjoy the benefits of the coverage for which it had paid two premiums.


I know that others might take exception to my analysis. I welcome readers to post their thoughts and reactions to my observations, using the blog’s comment feature.